The Flaw In The Square Vs. Foursquare Argument

That's the question a handful of payments companies are trying to answer. But despite a story making the rounds today, the future won't hinge on a grudge match between mobile payments startup Square and social check-in service Foursquare—or even Square and Facebook or Yelp. It's not one or the other. That wouldn't justify so many millions of dollars being invested in payments solutions, and it doesn't paint an accurate picture of all the ways we'll make decisions about where and how to spend our dollars in the near future.

It was inevitable that Square would use its Wallet app to offer up recommendations—the service already suggests nearby venues after paying with Square. But the flaw in the either/or thinking is that transactions, a passive way of understanding which coffee shops, dive bars, or boutiques you visit, could one day replace social check-ins. It's true that the kind of transaction data now being put to use by Square is valuable (is anyone surprised by this?), but it's not more important than social data gathered by Foursquare (or Yelp or Facebook).

Just as Pandora, Songza, and Echo Nest produce music recommendations based on a range of signals and data points, so too can we get recommendations for places from a variety of sources, whether MenuPages, Yelp, or Google-owned Zagat. Transaction data is likely to be a part of that equation down the road—maybe an especially powerful part—but that doesn't mean we should discount the value of social.

Square's discovery director Ajit Varma tells The Verge's Casey Newton today, "I think we can do something a lot better." But if he means "better than Foursquare," that's not what he says. And that's likely because he knows that's Square's challenge isn't so much about doing something better. It's about doing something different.

Square and Foursquare are going after two different datasets. A check-in is a fundamentally different data point than a transaction. It's inherently social, whereas payments are not. We check in at Foursquare so we can share our locations with friends. We want them knowing we're at Le Bernardin or Fenway Park. Positive sentiments are usually sewn into the expression. And we want to see where our friends have been when visiting a new city or neighborhood. One of the reasons that data is so powerful is because sentiment (positive in most cases) is baked into it, and it allows Foursquare to learn from our interests.

Square can certainly learn a lot about me based on my purchases. As Varma told The Verge, "We can tell you that people who like X might also like Y…[our directory is] a single place you can go as a customer and get all this information. And over time, we definitely want to make it more personalized." If Square weren't planning to do this, it'd be big news. It's a safe bet that Seamless and OpenTable are working on similar recommendation tools.

But it doesn't provide for that same social sharing and interaction—we're not seeing where our friends are transacting, for example. And it's also not always the case that we transact where we visit. For example, I might love going to concerts or hockey games or libraries, but if I'm buying tickets online beforehand or visiting a location with free entry, Square won't know about it. So how will it know what to recommend to me? The Verge's story briefly touches on this, pointing out how Square's data wouldn't include the reviews and tips that are popular on Yelp and Foursquare.

In case it's still not clear that Square is a long way off from directly threatening Foursquare or Yelp, consider that Square's directory now contains about 330,000 merchants. Foursquare boasts more than 50 million points of interest and 3.5 billion check-ins; Yelp has 102 million monthly users and close to 40 million local reviews. All of that data feeds and attracts check-ins, and helps the services serve up better recommendations.

Square's directory is still young, and while it's fast growing, its recommendation engine could not possibly be comprehensive—at least not compared to Foursquare's and Yelp's. Would Square not recommend a merchant or venue that doesn't accept Square, say?

It's not only impossible to predict who's winning this marathon, it's not even clear that everyone's running the same race. Foursquare (and services like it) are simply doing different things with different data. As Foursquare's chief revenue officer Steven Rosenblatt rightly explained, "I don't know how one replaces the other."